The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.
TELEVISION BROADCASTS LIMITED
(Incorporated in Hong Kong with limited liability)
CONNECTED TRANSACTIONS
AND
CONTINUING CONNECTED TRANSACTION WAIVER APPLICATIONS
TVB announces that:
(i) LYP, a non-wholly owned subsidiary of TVB, has entered into the Uplink Service Agreement, the Sub-Lease Agreement and the Supplemental Agreement, with ERA. LYP has also entered into various transactions for the purchase of equipment, licencing, advertising and program production with ERA;
(ii) TVBO and TVBIO, both wholly owned subsidiaries of TVB at the relevant time, have entered into the Master Production & Licence Agreement, Prints & Materials Agreement, Master Production Agreement and Renewed Agreement with ERA;
(iii) Hsin Chi, a non-wholly owned subsidiary of TVB, has entered into the Movie Rights Agreement with ERA; and
(iv) GSVL, a non wholly owned subsidiary of TVB, has entered into the Dealer Licence Agreement with GSVB. GSVL has also entered into transactions for the purchase of cassette tapes with Abound.
ERA is and at all material times was, a substantial shareholder of LYP and a connected person of TVB. GSVB was at all material times a substantial shareholder of GSVL and a connected person of TVB. In addition, Abound is and at all material times was, an associate of GSVL and a connected person of TVB. Accordingly, the entry into of each of the Agreements and the Transactions constitute connected transactions of TVB under the Listing Rules. Each of the Agreements and Transactions have been entered into on normal commercial terms and in the ordinary and usual course of business.
Whilst details of the Uplink Service Agreement, the Sub-Lease Agreement, the Master Production Agreement, the Movie Rights Agreement, the Dealer Licence Agreement and most of the Transactions (ie. purchase of equipment, licence by ERA to LYP, advertisements placed by ERA, purchase of cassette tapes and program production) were included in the published 1999 annual report and accounts of TVB, disclosure of each of the Agreements and each of the Transactions by way of press announcement at the time each such agreement/transaction was entered into was previously overlooked due to inadvertent oversight. This oversight is a breach of the Listing Rules and the Stock Exchange has indicated that it reserves the right to take appropriate action against TVB and/or its directors in respect of such breaches.
As each of the Transactions will take place on a continuing basis from year to year, TVB has applied to the Stock Exchange for conditional waivers in respect of each of the Transactions, for each of the three financial years ending December 31, 2003 (because the Stock Exchange will only grant a three year waiver). The Stock Exchange has indicated that the conditional waivers will be granted and details of the relevant cap (and the conditions to which the waivers are expected to be subject) are set out in this announcement.
Details of the Agreements, together with details of the Transactions, will be included in the next published annual report and accounts of TVB.
1. DETAILS OF PAST CONNECTED TRANSACTIONS
None of the Agreements described below will be continuing connected transactions of TVB. In the event that any of these agreements are renewed in the future, the terms and conditions thereof are likely to be re-negotiated between the parties prior to any such renewal. TVB will comply with the provisions of the Listing Rules and will issue a further press announcement at that time, if necessary.
(a) Uplink Service Agreement
On December 30, 1995, ERA and LYP entered into the Uplink Service Agreement for the period from January 1, 1996 to December 31, 1998. Under the Uplink Service Agreement, LYP agreed to provide ERA with a transmission service for video taped television programs via satellite for broadcast in Taiwan. The Uplink Service Agreement was renewed some time in 1999 (the exact date of renewal is unknown) for a further period from January 1, 1999 to October 27, 2000 on the same terms and conditions. Income earned in each year by LYP for the period 1996 to 2000 ranged from NT$19,642,857 (HK$4,763,393) to NT$23,809,524 (HK$5,773,810).
(b) Sub-Lease Agreement/Supplemental Agreement/Termination Agreement
On October 1, 1997, ERA and LYP entered into the Sub-Lease Agreement for the period from October 1, 1997 to September 30, 2002. Under the Sub-Lease Agreement, LYP agreed to sublease and ERA agreed to rent part of LYP production space at Basement Level 1 and 2/F., 260 Tun Hua North Road, Taipei. Rental income payable by ERA under the Sub-Lease Agreement is in proportion to its occupied floor area and subject to a 5% increase every twelve months (to reflect an identical increase in the head-lease agreement).
On January 25, 1999, ERA and LYP entered into the Supplemental Agreement pursuant to which the rental payable by ERA under the Sub-Lease Agreement was revised from January 16, 1999 as a result of a reduction in ERA's occupied floor area as from January 16, 1999. Rental income received in each year by LYP pursuant to the Sub-Lease Agreement for the period 1997 to 1999 ranged from NT$2,428,500 (HK$588,911) to NT$10,342,947 (HK$2,508,165), and was based on the floor area occupied by ERA.
On September 26, 2000, ERA and LYP entered into a termination agreement, with the effect that the sub-lease arrangement was terminated on October 1, 2000 and LYP has vacated the premises.
(c) Master Production & Licence Agreement/Prints & Materials Agreement
Since 1981, ERA has been a licensee of programs produced by TVB for the territory of Taiwan. Under a series of agreements entered into between TVBIO/TVBO and ERA and covering the period from July 1, 1994 to June 30, 1999 TVBIO/TVBO agreed to (i) grant ERA an exclusive licence in Taiwan to exhibit, let or hire video cassette tapes containing films/programs produced by TVB, TVBO and/or TVBIO and (ii) ERA agreed that it may commission TVBIO and/or TVBO to produce films/programs, (each of these agreements being referred to in this announcement as a "Master Production & Licence Agreement").
In addition, under a further series of agreements entered into between TVBIO/TVBO and ERA and covering an identical period as referred to above, TVBIO/TVBO agreed to supply ERA with prints (being master copies of films/programs) and materials (being promotional and/or packaging materials) in order to assist ERA to conduct its business pursuant to the rights granted under the respective Master Production & Licence Agreement, (each of these agreements being referred to in this announcement as a "Prints & Materials Agreement"). The total income earned in each contract year by TVBIO or TVBO under the Master Production & Licence Agreements and Prints & Materials Agreements for the period from July 1, 1995 to June 30, 1999 ranged from NT$52,309,580 (HK$12,685,073) to NT$60,600,000 (HK$14,695,500).
(d) Master Production Agreement/Renewed Agreement
On June 30, 2000, TVBO and ERA entered into the Master Production Agreement under which TVBO agreed to produce and ERA agreed to engage TVBO to produce films/programs in the Mandarin language during the period from July 1, 1999 to June 30, 2000. The amount due from ERA to TVBO under the Master Production Agreement is NT$54,000,000 (HK$13,095,000). On January 5, 2001, the parties agreed to renew the Master Production Agreement on the same terms and conditions for another year from July 1, 2000 to June 30, 2001 ("Renewed Agreement") except that the right of ERA in exploiting the commissioned films/programs is extended to video compact discs format.
The amount payable by ERA under the Renewed Agreement consists of a minimum amount and if the gross revenue of ERA exceeds a certain amount, sharing of 35% of ERA's gross revenue.
(e) Movie Rights Agreement
On November 20, 1998, Hsin Chi and ERA entered into the Movie Rights Agreement whereby ERA agreed to license 535 films (of varying "grades", with each "grade" having a separate price) to Hsin Chi for broadcast via its Pay-Satellite-TV platform in Taiwan. The license term of each film is different, but is within the period from November 20, 1998 to October 21, 2007. The license fee paid by Hsin Chi was US$4,811,000 (HK$37,525,800) for the whole licence term. As a result of a delay in the launch of the Pay-Satellite-TV platform operated by Hsin Chi, on June 9, 1999, Hsin Chin appointed ERA as its agent to find a suitable licensee for all of the 535 films. Pursuant to such an arrangement, ERA undertook to Hsin Chi to find a licensee for all the 535 films by June 30, 2000 and to take up the licences for those films remaining unlicensed by that date, if any, at a total consideration of not less than US$4,311,000 (HK$33,625,800). ERA has found licencees for approximately 60% of those films and has agreed to take up the remaining unlicensed films.
(f) Dealer Licence Agreement
Since 1987, GSVB has appointed GSVL as a non-exclusive dealer to distribute certain video and audio programs and materials in Malaysia. The term of each appointment has been for one year commencing on January 1 and ending on December 31 in each year (collectively referred to as the "Dealer License Agreement"). Monies paid by GSVL to GSVB for each year from 1991 to 1999 ranged from MYR3,150,000 (HK$6,422,850) to MYR8,895,084 (HK$18,137,076), based on a percentage of the gross income generated from the exploitation of the licenced programmes, which varied depending on market conditions. According to the Dealer License Agreement signed on January 1, 2000 (for the year 2000) GSVL is to pay to GSVB an amount equivalent to 25% of the gross income generated from the exploitation of programs.
2. ON-GOING CONNECTED TRANSACTIONS
Each of the Transactions described below were entered into between the respective parties without any written agreement having been executed, and will be continuing connected transactions of TVB.
Each transaction described below consists of a series of transactions that have taken place between the publication of two sets of accounts of TVB. A summary of the relevant terms of each transaction appears below.
(a) Purchase of Equipment
In March 1999, LYP purchased 9 sets of encoders and 9 sets of decoders equipment from ERA for NT$14,285,714 (HK$3,464,286).
(b) Licence by ERA to LYP
Since 1995, ERA has licensed various programs to LYP for broadcast on LYP's cable TV channels. Monies paid in each year by LYP for the period 1995 to 1999 ranged from NT$3,426,325 (HK$830,884) to NT$15,919,025 (HK$3,860,364).
(c) Licence by LYP to ERA
In 1999, LYP licensed re-edited version of various programs produced by LYP to ERA for broadcast on channels operated by ERA after having been first run by LYP. Monies received by LYP for 1999 were NT$4,681,155 (HK$1,135,180).
(d) Advertisements placed by ERA
Since 1995, ERA has been placing advertisements on cable TV channels operated by LYP, channels or magazines of which LYP was appointed as an agent for recruiting advertisement. Monies received in each year by LYP for the period 1995 to 1999 ranged from NT$400,000 (HK$97,000) to NT$36,255,716 (HK$8,792,011), based on the then current rate card issued by the relevant channels or magazines.
(e) Purchase of Cassette Tapes
Since 1992, GSVL has purchased both blank new tapes and spooling tapes from Abound. Monies paid in each year by GSVL to Abound for the period 1992 to 1999 ranged from MYR962,325 (HK$1,962,181) to MYR1,479,466 (HK$3,016,631).
(f) Programme production
Since 1995, LYP appointed and ERA agreed to produce programs for its use. Monies paid in each year by LYP for the period 1995 to 1999 ranged from NT$710,555 (HK$172,310) to NT$21,469,403 (HK$5,206,330).
3. CONTINUING CONNECTED TRANSACTIONS : WAIVER CONDITIONS
On November 28, 2000 TVB applied to the Stock Exchange for conditional waivers from strict compliance with the requirements of the Listing Rules to issue a press announcement in relation to each of the Transactions for each of the three financial years ending December 31, 2003 (because each of the Transactions are to take place on a continuing basis from year to year, and the Stock Exchange will only grant a 3 year waiver). If granted, the waivers will be conditional (and will cover the relevant periods referred to above) on the basis that the aggregate amount of the relevant transaction for each financial year of the Group shall not exceed the relevant cap amount ("Cap Amount") as set out below:
Transaction Parties Cap Amount
(per annum)
Purchase of equipment ERA & LYP NT$30M (HK$7,275,000)
Licence by ERA to LYP ERA & LYP NT$27M (HK$6,547,500)
Licence by LYP to ERA ERA & LYP NT$10M (HK$2,425,000)
Advertisements placed by ERA ERA & LYP NT$52M (HK$12,610,000)
Purchase of cassette tapes GSVL & Abound MYR3M (HK$6,117,000)
Program production ERA & LYP NT$30M (HK$7,275,000)
(Note: Items (2)-(7) above relate to the transactions described in 2(a)-(f) above respectively.)
Details of the conditions to which the waivers are expected to be subject are set out below:
(a) the transactions shall be:
(i) entered into by TVB in the ordinary and usual course of its business;
(ii) conducted either (A) on normal commercial terms (which expression will be applied by reference to transactions of a similar nature and to be made by similar entities) or (B) (where there is no available comparison) on terms that are fair and reasonable so far as the shareholders of TVB are concerned; and
(iii) entered into either (A) in accordance with the terms of the agreements governing such transactions or (B) (where there are no such agreements) on terms no less favourable than those available to or from independent third parties;
(b) the aggregate amount of the transactions for each financial year of the Group shall not exceed the relevant Cap Amount for each agreement (as set out above) in that financial year;
(c) the independent non-executive directors of TVB shall review the transactions annually and confirm in TVB's next annual report that these were conducted in the manner as stated in paragraphs (a) and (b) above;
(d) TVB's auditors shall review the transactions annually and confirm in a letter (the "Letter") to the directors of TVB (a copy of which shall be provided to the Listing Division of the Stock Exchange) stating whether: